[miningmx.com] – PROPOSALS by Chinese investors to buy marginal South
African precious metal assets totalling R7.7bn raises the question as to
whether the flurry in business activity signals the bottom of the commodities
cycle, or if the approaches are merely coincidental, or just plain
wrong-headed?

“The Chinese are very
astute investors. Although they do have some difficulty operating in Western
economies, it’s still fair to say that they are very commercial,” said Neal
Froneman, CEO of Sibanye Gold.

Froneman knows a thing
or two about Chinese investment. He sold Gold One International to a Chinese
consortium ahead of the combination of some of its assets with Sibanye Gold
which was demerged from Gold Fields. As a result, about 20% of Sibanye’s share
register consists of Asian investors.

The question about the
intentions of Chinese investors comes after a series of announcements by
Chinese companies in October and November that they were investing in South
African mining.

The first this year was
a bid by a consortium led by China National Arts & Crafts Corporation for
the Blue Ridge mine of Aquarius Platinum for about $37m (R405m). The
transaction was eventually scuttled – much to the annoyance of Aquarius – after
the South African government failed to approve the proposed transaction,
allegedly because its empowerment credentials didn’t add up.

The other four proposals
are still in the pipes.

Three of them are rival
takeover bids of a $148m (R1.6bn) and a $150m (R1.64bn) and another $150m for
Johannesburg’s Central Rand Gold (CRG). The suitors are a Hong Kong-registered
businesses called Hiria Group, Beijing Ankong Investment and Shengbang Jiabo
Consulting. Somewhat eccentrically, the parent companies of some of these
Chinese businesses have diverse, non-mining interests ranging from yacht hire
to chemicals and even media.

The third is the
somewhat heftier $225m (R2.46bn) offer by Hebei Zhongbo for Eastern Platinum, a
Johannesburg and Toronto-listed platinum mining company that put its eastern
and western bushveld properties into mothballs in 2012 and 2013 as the platinum
price dived.

What’s interesting is
that none of these assets could be described as a dripping roast while the
identity of the bidders is strange to Western eyes: the notion of an arts and crafts
led consortium makes one think of crayons and glue rather than backacters and
graders.

Paul Smith, COO of
Wesizwe Platinum, a R1.3bn company in which China’s Jinchuan Group has a 45%
stake, believes the bids for Eastern Platinum and Central Rand Gold are
misjudged investments.

“I find them astonishing
and astounding. I can’t understand why these companies are buying these assets.
They are really buying liabilities,” said Smith who added that while Jinchuan
Group had knowledge of the bidders, it would be a mistake to think there was “a
higher order” logic to the offers.

“I suppose there’s a
flavour in them that this is the very bottom of the market. So if people really
believe that it’s the bottom of the cycle, and the prices for commodities [such
as platinum] recover really agressively, it could be a good buy,” he said.

Ilja Graulich who works
at Madini Minerals, a private equity company that is currently investing and
helping to manage assets in Africa, said the first wave of Chinese investment
was fairly undiscriminating, such as the 2011, $580m bid by Hing Wing
International for Taung Gold, an exploration business that is yet to progress.

“The Chinese have never
been scared about entering South Africa,” said Graulich. “What has changed,
however, is that they are learning to walk away from assets,” he added. His
former company, Elemental Minerals, which was developing potash in the Central
African Republic, saw an offer from China’s Dingyi Group fail earlier this
year.

Froneman said the
important perspective about Chinese investment in South Africa is that it’s not
time-bound by the same deadlines as Western companies. “In general, they have a
longer time-frame in respect of commodities.

“Disruptions don’t phase
them and they have a completey different view of political risk,” he said
adding that South Africa’s participation in the BRICS alliance was starting to
bear fruit in these mining investments. “They are bankrolling some South
African deposits as a means of getting in Africa,” he said.

A potential investment
by China in the South African steel industry – which has limped along at best
over the last five years - is another example of the speculative nature of
Chinese investment.

State-owned Hebei Iron
and Steel said on September 12 that it had signed a deal to take a 51% stake in
a venture with the Industrial Development Corporation and the China-Africa
Development Fund to build its biggest overseas steel mill.

It’s an approach that
has David Brown, CEO of Coal of Africa, particularly interested.

CoAL recently sold
additional shares to Beijing Haohua Energy (BHE) a state-owned Chinese company
as part of its strategy to finance its projects and clean up the balance sheet.

“There would be a
synergistic benefit of Hebei using our coking coal that serves the greater good
for the Chinese,” said Brown. BHE already has about 24% of the company.

Investments by CAD,
which has its regional headquarters in Johannesburg’s Sandton, are the ones
that seem to stick in South Africa. “An investment by CAD is a major stamp of
approval,” said Graulich.